Pound gains as Tory election lead promises end to political uncertainty

Pound gains as Tory election lead promises end to political uncertainty
FILE PHOTO: UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic Copyright DADO RUVIC(Reuters)
By Reuters
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By Sujata Rao

LONDON (Reuters) - Sterling climbed above 10-day lows versus the dollar on Monday, as opinion polls continued to show the Conservative Party to be runaway favourite to win the Dec. 12 election with a pledge to implement Brexit and halt 3-1/2-years of political uncertainty.

The pound rose 0.4% at $1.2883, rising off 10-day lows hit on Friday when dire PMI data highlighted the weak state of the UK economy and underscored the low possibility of interest rate hikes in the near future.

Against the euro too, it firmed 0.4% at 85.54 pence.

Bookies have lengthened the odds of a hung parliament after the UK election, with the Tories now seen on track for majority of almost 50 MPs

Prime Minister Boris Johnson unveiled an election manifesto on Sunday that promised more public sector spending and no further extensions to the protracted departure from the EU.

They also pledged no new taxes, in contrast to the opposition Labour Party that has promised to raise taxes on the rich and businesses to fund a major expansion of the state.

Most polls show the Conservatives with a lead of at least 10 points over Labour. That, alongside a decline in fears of a no-deal Brexit, has pushed sterling almost 8% higher since early-September.

"Markets can only really see a Tory victory and it's looking so likely that I don't see it giving sterling much more support. Most of it is in the price already," said Colin Asher, senior economist at Mizuho.

However, speculators added further to their net sterling short positions in the week to Nov. 19, according to the U.S. Commodity Futures Trading Commission.

One-month implied volatility is trading around 12%, having almost doubled from early-November when the election was called but well off highs over 14% hit in mid-October <GBP1MO=FN>.

(Reporting by Sujata Rao; editing by Philippa Fletcher)

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